The Role of new Financial Technology (Finteches) on Monetary Base Usages in Iran

اقتصاد پولی مالی

Article 5, Volume 29, Issue 24, September 2022, Pages 116-157   

Document Type: Original Article

DOI: 10.22067/mfe.2023.68784.1029

Authors

Samira Noori¹; Sohrab Delangizan^{* 2}; Kiomars Sohaili²

¹Razi University Faculty of Social Sciences - Economics

²Associate Professor of Economics Department, Razi University, Kermanshah

Abstract

 

INTRODUCTION

    Today, new financial technologies (fin techs) have caused extensive changes in the banking industry. In recent years, new financial technologies have become the most popular term in the word of economic markets Investors in these emerging markets are looking to innovate to improve their position. Fintech includes both digital innovations and technology-based business model innovations in the financial sector. Such innovations can disrupt existing industry structures. Fintech development has increased the competitiveness of commercial banks, as digital technologies play an important role in improving the efficiency of services provided by banks. and other financial institutions have played to small companies and private companies. Others believe that the most important question is when these innovations in fintech will affect the implementation and formulation of macroeconomic policies. Therefore, the new financial technology and its effect on the monetary field, its concepts and its nature need to be investigated and explained. In this research, the role of modern financial technology on Monetary Base Usages in Iran will be examined, and in this regard, in order to check the validity of the research hypotheses, the econometric models will be used the data during the period of 2013-2019. This model is estimated by ARDL and OLS approach.
 
2- THEORETICAL FRAMEWORK
    Electronic money can be replaced central bank money by in terms of its features. The replacement of central bank money will affect it the most due to the relatively larger volume of banknotes and coins in the definition of M₁ money. The narrow definition of M₁ money includes notes and cash in the hands of the people (C) plus demand deposits (D). Bank cards can increase the volume of money by increasing liquidity and monetary base. According to the theories of monetarists, the increase in money in turn causes an increase in inflation, because with an independent increase in the amount of money, the amount of money paid and the amount of money demanded collides, and as a result, it faces a surplus of money, which causes it to increase. Lack of sufficient supply of goods causes prices to rise.
 
3- METHODOLOGY 
    The patterns examined in this research are as follows The model introduced to evaluate the estimation of modern financial technology on the speed of in come velocity:
 
LV_t=α₀+α₁LV_t-1+α₂LFINTECH_t+α₃LCU_t+α₄LM1_t+U_t                     (1)                       
    The model introduced to check the estimation of the new financial  
technology on the money multiplier:
 
Lm_t=α₀+α₁TREND_t+U_t                                                                                                         (2)                                                                             
 
    The introduced model for evaluation of the estimation of new financial technology on money supply:
 
LM1_t=α₀+α₁LM1_t-1+α₂LFINTECH_t+α₃Lm_t+α₄LCU_t+α₅LRGDP_t+U_t   (3)                           
 
    And at the end, the model introduced to investigate the role of modern financial technology on monetary base usages:
 
LMB_t=α₀+α₁LMB_t-1+α₂LFINTECH_t+α₃Lm_t+α₄LRGDP_t+α₅LRRt+U_t    (4)                           
4- RESULTS & DISCUSSION
      The results of the models show that modern financial technology (the sum of mobile and internet transactions) has a positive and significant effect on the money multiplier in Iran, because in the era of modern financial technology, the monetary money multiplier trend has been upward. In examination of the velocity of money, the results show that modern financial technology and money supply have a positive and significant effect on the velocity of money in Iran. but the volume of banknotes and coins in the hands of the people has a negative and significant effect on the velocity of money in Iran, because the increase in the volume of banknotes and cash in people's hands increases the ratio of banknotes and cash to deposits, which in itself leads to a decrease in the velocity of money. In examining the money supply pattern, the results showed that the new financial technology, money multiplier, real gross product and the number of banknotes and coins in the hands of the people have a positive and significant effect on the money supply in Iran. In examining the model of monetary base usages, the results indicated that modern financial technology, monetary multiplier and real gross output have a negative and significant effect on monetary base usages in Iran, but the volume of legal reserves with the central bank has a positive and significant effect on monetary base usages.
 
5- CONCLUSIONS & SUGGESTIONS
    The results show that the emergence of new financial technologies increases income velocity, money multiplier and supply of money and on the other hand leads to a decrease monetary base usage.   The expansion of modern financial technologies is necessary due to the reduction of transaction costs, the increase in the speed of transactions, the facilitation of the implementation of banking services and the increase of competition between knowledge-based companies, and the basis for its expansion must be provided.

Keywords

new financial Technology (Fin Teches); Money multiplier; In come Velocity; Supply of Money; Monetary Base Usages

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